Strategy and non-technological innovation      Assignment for part-time MBA Competitive Strategies, week 6By Gulcin Askin,...
I.     Introduction       This paper describes the consequences of a non-technical innovation for the strategy ofa firm th...
The non-technological innovations of Stage Entertainment that we will discuss in thispaper have been selected due to their...
Stage Entertainment controls larger part of the value system (Mol, Wijnberg and Carroll,2005). In other words, by applying...
during a series of television shows. One of the professional jurors was Joop van den Ende.During the last episode the tele...
III.      Vertical and horizontal competitive processes       The vertical competitive process that Stage Entertainment is...
According to Dempster (2006) risks involving creative industry entrepreneurship arenearly impossible to predict. Caves (20...
ReferencesArthur, W. Brian (1996), Increasing Returns and the New World of Business, HarvardBusiness Review, (July-August)...
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Strategy and non-technological innovation

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Strategy and non-technological innovation

  1. 1. Strategy and non-technological innovation Assignment for part-time MBA Competitive Strategies, week 6By Gulcin Askin, Michelle Donovan, Kivanc Ozuolmez and Peter Tempelman October 8, 2012
  2. 2. I. Introduction This paper describes the consequences of a non-technical innovation for the strategy ofa firm that operates in cultural industry. The example chosen is that of the company StageEntertainment. In the first part of this paper we will provide a brief history of StageEntertainment, single out two non-technological innovations and discuss how theseinnovations have affected the strategic behaviour of Stage Entertainment. In the second partwe will discuss both the horizontal and vertical competitive processes Stage Entertainment isinvolved in and argue if one of these should be considered more important to StageEntertainment’s overall sustainable competitive advantage. II. Non-technological innovations and strategic behaviour Stage Entertainment is the brainchild of the Dutch creative entrepreneur Joop van denEnde (born 1942). Stage Entertainment is the result of a merger of several other entertainmentcompanies owned and run by Van den Ende and was incorporated in 1999. It has seen rapidinternational expansion and is now active in 9 countries, employing 4000 people. Theturnover is €600 million (Nispen, M. van, Jaekele S. and Charrington, J, 2009).Van den Ende describes the strategy of Stage Entertainment as a strategy consisting of threeelements (Nispen et al 2009): 1. Venues: programming and managing a network of venues across Europe (i.e. theatres) 2. Productions: presenting a wide range of existing, leading international content. The rights of productions are owned by other parties, but produced for a specific country by Stage Entertainment (e.g. the theatrical distribution rights of ‘My Fair Lady’ are owned by Paramount Pictures and CBS). 3. Creative development: creating and developing original new musicals. Stage Entertainment also develops and owns new theatrical works, such as the Dutch musical ‘Ciske de Rat’. 2
  3. 3. The non-technological innovations of Stage Entertainment that we will discuss in thispaper have been selected due to their conformity to the following definition of innovation. ‘Aninnovation is something new which is presented in such a way that the value will bedetermined by the selectors.’ (Wijnberg, 2004, p.1416).The key elements in this definition are‘something new’, ‘value’ and ‘determined by the selectors’. ‘Something new’ in the contextof this paper means that the ‘something’ was not there before, is actually introduced into amarket in an attempt to be commercially successful (Wijnberg, 2004). The concept of ‘value’ties in with ‘commercially successful’. However, in order to have value, the value must alsobe determined. According to Wijnberg (2004), the process of determination must take place ina context of a particular set of consumer preferences: a selection system. Wijnberg (2004)argues that in industries dealing with creative goods, the competitive process is governed by aselection system comprising of the combined selection systems of peer selection and expertselection. In the case of Stage Entertainment we have identified the peer selectors being ‘otherproducers’. Examples of peers from the UK, are Cameron Mackintosh, with whom he hasworked on “Mary Poppins” and “Miss Saigon”, and Andrew Lloyd Webber, who gave hisapproval for van den Ende to bring at least four of his musicals to the Netherlands (“Evita”,“Jesus Christ Superstar”, “Aspects of Love”, “The Phantom of the Opera”). Several musicalshave won awards, which can be regarded as determining value through an expert selectionprocess. We consider jurors, journalists and critics in this case as the experts of the expertselection system. The third selection system that applies is the traditional type (Wijnberg2004): the audience being the selectors, Stage Entertainment is the selected. The audiencedetermines the value by buying tickets. The first non-technological innovation of Stage Entertainment is combining the threeelements mentioned above: 1) venues 2) production and 3) creative development. As far asour limited research has shown, no other musical producers in The Netherlands, Germany,Spain, Russia, Italy and France have combined these elements. In combining these elements 3
  4. 4. Stage Entertainment controls larger part of the value system (Mol, Wijnberg and Carroll,2005). In other words, by applying different business models in terms of product development(creative development), manufacturing (producing shows) and distribution (venues), a non-technological innovation has taken place. The benefits of doing so are that StageEntertainment will be able to capture more value and decrease the risk of value chain envy(Mol et al. 2005). Furthermore it could be argued that due to the complex nature of theproduct, a theatrical good such as a musical, and the specific domain knowledge required tocreate and produce musicals, internal coordination is a success factor (Grant, 1996). Bycombining the three elements internal coordination will be easier. This first innovation can be broken down into two elements. First there is thecombination of producing existing shows. By combining the production of musical showsowned by other parties with the development of their own, original shows StageEntertainment diversifies its risks of not having (enough) theatre ‘hits’ to satisfy customerdemand. By combining these shows with the venues it manages, Stage Entertainment canoffer the customer a memorable experience for which there is a high willingness-to-pay(Brandenburger and Stuart, 1996) or in other words, an important opportunity cost forconsumers (Dempster, 2006). The importance to make the visit to a musical show amemorable experience is important in order to control the nobody knows (Caves, 2003) risk ofconsumer demand (Dempster, 2006). The venue can have some influence on audiencecomposition (Dempster, 2006), one of the three key determinants of consumer demand. Also,the shows can be tailored to suit the venues. As well as this, Stage Entertainment has its owncall centre for ticket sales, TopTicketLine (and for a time had similar ventures in the UK andGermany) allowing it to keep profits in-house. The second non-technological innovation by Stage Entertainment is the selection ofthe main character for a new production, e.g. for the musical ‘Tarzan’. In 2006, for the firsttime in Dutch television history, auditions for the part of the character ‘Tarzan’ were held 4
  5. 5. during a series of television shows. One of the professional jurors was Joop van den Ende.During the last episode the television audience could also cast a vote. By getting involved in atelevised audition show Stage Entertainment organized free media coverage, a second keydeterminant of consumer demand (Dempster, 2006). Since the participants in the talentscouting television show were non-professional musical stars, it can be expected that therewill be asymmetrical information (Caves, 2003) between artist and Stage Entertainment,putting the artist in a position where he will likely not be able to capture more value than headds to the value system (Mol et al. 2005). Furthermore, the contract between StageEntertainment and the winner of the talent scouting will probably have the property of art forart’s sake (Caves, 2003). This will also help Stage Entertainment to capture a larger part than‘1’ in the value chain (Mol et al. 2005). What the exact influence of these innovations is on the strategic behaviour of StageEntertainment must be studied in further research. The mere fact that Stage Entertainment has30 venues and 4000 employees suggest that a positive feedback loop of increasing returnsmay be applicable to Stage Entertainment: ‘Increasing returns are the tendency for that whichis ahead to get further ahead…’ (Arthur, 2000, p.100). From a Resource-based-viewperspective the knowledge to create and produce musicals, have the artist network and controlthe venues to perform are resources that constitute ex-post limits to competition. StageEntertainments combine these intra firm knowledge and assets to create higher economicvalue on the grounds that their nature of being hardly to copy and substitutable by competitors(Peteraf, 1993). If we refer to the above mentioned definition of innovation, from our limited researchwe can conclude that the two innovations discussed in this paper to some extent cover the keyelements of the definition: ‘something new’ (the combination of the three elements), ‘value’(awards and turnover) and ‘determined by the selectors’ (awards and the decision of theaudience to buy tickets). 5
  6. 6. III. Vertical and horizontal competitive processes The vertical competitive process that Stage Entertainment is involved in is theproduction of musicals, concerts, shows, shows on ice and events. In this this paper we willfocus on musical shows, e.g. ‘My Fair Lady’, ‘Tarzan’ or ‘Ciske de Rat’. We have derived a basic value system of a musical show from Mol et al. (2005),Depster (2006) and Caves (2003). The basic value system, containing multiple value chains,is as follows:Playwrights/composers → producers/directors/actors → venues → advertising →consumers. Between the parties involved with each element a tug of war (Mol et al, 2005) tocapture a larger part of the value can be expected to go on. However, since the strategy ofStage Entertainment is to control or own a relatively large part of the value system, the maintug of war will likely go on upstream in the value chain: between playwrights and composers(or the parties that hold the right to a show, e.g. Paramount Pictures / CBS) and StageEntertainment. The question that must be answered by Stage Entertainment is how much theyare willing to pay Paramount Pictures / CBS to produce e.g. ‘My Fair Lady’. This examplemakes it clear how beneficial it can be to produce original work. In that case, StageEntertainment is able to capture the highest value possible. A down side to producing originalworks may be that advertising costs for an unknown, new original musical will likely behigher than for an established musical ‘hit’. The horizontal competitive process that Stage Entertainment is involved in concernscompeting with other musical production firms. It can be expected that in established musicalmarkets, such as the London’s West End or New York’s Broadway, there may be fiercecompetition for the audience. Broadway currently offers 24 shows according to the InternetBroadway Database (IBDB, 2012). London’s West End currently offers 37 shows according(London Theatre Guide, 2012). In the whole of the Netherlands a total of 13 musical showsare currently offered (Musicalfriends, 2012). 6
  7. 7. According to Dempster (2006) risks involving creative industry entrepreneurship arenearly impossible to predict. Caves (2003) used the catchphrase nobody knows to describe thefundamental uncertainty that is part of the production of a creative good. Entrepreneurship(Jacobson, 1992) and luck (Arthur, 1996) are therefore important factors for StageEntertainment, engaging in horizontal competitive processes. A case can be made that both vertical and horizontal competitive processes areimportant to Stage Entertainment’s overall sustainable competitive advantage. A compellingargument about which competitive process should be considered more important cannot begiven and could be the subject of further research. Within the limitations of this paper we canconclude the following. In musical markets where there is not an established musical tradition (TheNetherlands, Germany, Spain, Russia, Italy and France - in Germany their subsidiary based inHamburg has a near monopoly). The emphasis on ‘winning’ in the vertical competitionprocess may prove to be the most important overall sustainable advantage. In doing so StageEntertainment will capture more value than it creates in the value system. For example, otherparties such as musical actors in the value system in these countries will be in a disadvantagedposition due to asymmetric information and the attitude of the actors towards their work - artfor art’s sake - (Caves 2003). In established musical markets (Broadway, West End), Stage Entertainment will likelyendure tough competition in the theatres. The public has many musicals to choose from. Theselection system will most likely be of the traditional type (Wijnberg, 2004), where theconsumers are the selectors and Stage Entertainment is a producer selected. To remaincompetitive in these markets ‘winning’ in the horizontal competitive process will likely bemore important to Stage Entertainment’s overall sustainable advantage. 7
  8. 8. ReferencesArthur, W. Brian (1996), Increasing Returns and the New World of Business, HarvardBusiness Review, (July-August): 100-109.Caves, R.E. (2003) Contracts Between Art and Commerce, Journal of Economic Perspectives,17(2): 73-83Dempster, A (2006) Managing Uncertainties in the Creative Industries: Lessons from JerrySpringer The Opera, Creativity and Innovation Management, 15 (3): 224-233.Jacobson, Robert (1992), The “Austrian” School of Strategy, Academy of ManagementReview, 17(4): 782-807Mol, J.M. and Wijnberg, N.M. (2005) Value Chain Envy: Explaining New Entry and VerticalIntegration In Popular Music, Journal of Management Studies, 42, (2): 251-276.Nispen, M. van, Jaekele S. and Charrington, J. (2009) Stage Entertainment corporate brochurePeteraf, Margaret A. (1993), ‘The Cornerstones of Competitive Advantage: A Resource-basedView’, Strategic Management Journal, 14: 179-191.Wijnberg, N.M. (2004) Innovation and Organization: Value and Competition in SelectionSystems, Organization Studies, 25 (8): 1469-1490.http:/ / www.musicals.nl/wicked-nieuws-nieuwsberichten-wicked-miss-saigon-next-to-normal-en-de-musical-droomvlucht-grote-winnaars-musicalworld-awards.asp (visited October 7, 2012)http://www.ibdb.com/advSearchShows.php(visited October 7, 2012)http:/ /www.londontheatre.co.uk/londontheatre/whatson/musicals.htm (visited October 6, 2012)http:/ / www.musicalfriends.nl/musicals (visited October 7, 2012)http://www.musicals.nl/marypoppins-home.asp (visited October 7, 2012)http://nl.wikipedia.org/wiki/Miss_Saigon (visited October 7, 2012)http://en.wikipedia.org/wiki/Stage_Entertainment (visited October 6, 2012) 8

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